Not remotely true, many buy and hold investors have stops to limit their losses and/or exit their positions at certain levels. Flash crashes hurt them greatly.
So you'd rather ride the sinking ship and lose all your money as the company goes bankrupt? Are you saying you'd never exit any of your positions no matter how much money you lost?
The stock market cannot go to 0. It is literally impossible. If you are invested in the fortune 500.. and the value went to literally 0.. we are in a zombie Apocalypse. Money no longer has value. So yes I lost all my investment, but I also don't have a job, and a gun is my most valuable asset.
Buy and hold = Buy big index funds (i.e. Fortune 500), and then never ever ever ever sell, until you are ready to spend the money (i.e. draw-downs in retirement).
Trying to go "oh the market lost 20% this week, it is going to 0 soon" is a fools investing.
Better to have a loss limiter, than lose it all. Without a stop loss, you can't limit your risk. And yes, exiting at a small loss is the point, it prevents a much bigger loss. Refusing to exit with a loss is how the market takes it all from you.
Retirees might need to liquid a percentage of their portfolio each month to pay their bills. Getting caught in a flash crash can have an effect on them.
In a general sense though I agree that the behavior shouldn't be illegal but am fine with exchanges implementing rules about it. For a trade to occur both the buyer and the seller are getting what they want at a price they both deem acceptable. Phantom orders does not inherently change that.
Keep in mind that you're talking about getting caught in a window that was 34 minutes long. So you'd have to be pretty unlucky, not to mention oblivious, to push through a market sell order at that time.